Venture capitalists are not being very welcoming to their new Democratic overlords. Instead of gladly, nee eagerly, acquiescing to Tim Geithner’s suggestion that they be regulated with all the subtlety and care of a prostate exam from a Borg, they’re wondering what the heck they did to draw his attention.
The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren’t “a threat to financial stability.”
Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.
“I cannot imagine any venture fund being of a size to pose ‘systemic risk,’ so they either don’t understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed,” says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor.
Oh, I think more than a few folks in Washington understand that very well. In fact, I think they’re kind of hoping that they can squelch the entrepreneurial spirit that creates such horrible inequity in the world.
And if destroying that culture means fewer gadgets and less industry, well, that’ll just bring us closer to the miraculous, world-saving Kyoto targets. That, as they say, isn’t a bug but a feature.
Oh, and just so you know, this little venture will hurt small businesses very badly since one of their major sources of capital will dry up. Gosh, I wonder what other pools of cash might be left to help them out? Hmm…that’s surely a puzzler.